XPeng Profit Margins Recover, AI Layout Nears Harvest Period

Overview

Jefferies released an in-depth outlook report on XPeng Motors, believing the company has passed the trough of profitability pressure after experiencing short-term loss pressure. Core automotive business gross margins continue to improve, while AI and robotics businesses enter a key implementation stage. Although short-term profit fluctuations remain, institutions believe the market has not fully priced in the long-term value of its AI technology, maintaining a Buy rating, target price $25.2, implying 53% upside.

Core views

Demand Side: Although XPeng's 1Q26 delivery volume decreased YoY, ASP rose to approx 175k RMB, flagship model order share exceeded 80%, and management is guiding customers towards higher-margin versions like SE and EREV. Overseas delivery volume expected to double YoY in 2026, international revenue share maintained above 20%, becoming important growth engine. Supply & Cost Side: Despite slight sequential decline in per-unit gross margin due to rising memory chip and battery costs, overall GPM still reached new high of 20.6%, mainly thanks to product mix optimization and economies of scale. Company plans 12 Billion CNY R&D investment for full year 2026, 7 Billion used for Physical AI (such as robots, Robotaxi), 1Q26 spent 2.9 Billion, indicating sustained R&D intensity for the year. AI & Robotics Business: Robotaxi business has obtained operation permit in Guangzhou, operating L4 full-redundancy fleet based on GX model, planned to start paid pilot in 3Q26, expand partners in 2027. L4 hardware decoupled from vehicle models, can be quickly reused to other models. Next-gen humanoid robot 'Iron' will unveil in 3Q26, target mass production by end of 2026, initial deployment in stores, expand B2B market in 2027. Management expects robot hardware gross margin will exceed automotive business, and achieve continuous monetization via software services in future. Profitability & Valuation: Company targets positive free cash flow for full year 2026. Institutions use SOTP (Sum of the Parts Valuation Method) to value XPeng, evaluating EV business and AI assets separately. Under 25.2 USD target price, EV business valuation is 16.7 USD/share, AI asset valuation is 9.8 USD/share, highlighting independent value potential of AI assets.

Analysis framework

Institutions adopt a 'Step-by-Step Verification' analysis framework: First confirm core automotive business profitability has stabilized and recovered, proving operational resilience through data such as gross margin, ASP, delivery volume, eliminating possibility of fundamental deterioration; Second, focus on substantial progress in AI and robotics and other non-traditional automotive businesses, tracking Robotaxi license, hardware decoupling, pilot schedule, and robot mass production plan as key milestones, judge inflection point where technology implementation turns from 'Concept' to 'Commercialization'; Finally, through SOTP valuation model, separate market valuation logic for traditional automakers and tech companies, assign value separately to AI assets, thereby revealing potential undervaluation of current market pricing. Core Logic of Analysis: XPeng is no longer a single EV manufacturer, but a tech platform integrating intelligent driving and physical AI. Therefore, judging its value cannot look only at car sales and profits, but must assess whether its AI technology can achieve quantifiable commercial applications and revenue contributions in 2026-2027.

Methodology notes

• Valuation MethodSOTP Segment Valuation

  SOTP (Sum of the Parts) Segment Valuation Method

  This method treats the company as a combination of multiple independent businesses, evaluating each business segment's value separately then summing them up. This report separates XPeng's electric vehicle business and AI/robotics business for valuation, assigning 9.8 USD/share value specifically to AI assets, which is rare in traditional automaker valuation, reflecting re-pricing of tech attributes.

• Industry/Industrial Analysis FrameworkPenetration Rate S-Curve

  City NOA (Navigation Assisted Driving) Reached Commercial Inflection Point

  Report believes city NOA function popularity has crossed early adopter phase, entered mainstream market promotion inflection point, marking autonomous driving technology turning from 'Optional Function' to 'Core Selling Point'. XPeng as technology pioneer expected to benefit first from sales and brand premium brought by this inflection point.

• Competition & Strategy FrameworkMoat / competitive advantage

  Full Stack Self-developed Intelligent Driving & Vehicle System

  Report emphasizes XPeng persists in full stack self-development of intelligent driving, vehicle OS and core systems, forming core competitive barrier differentiating it from most NEV manufacturers relying on suppliers, foundation for technical leadership and high margins.

• Supply & Demand FrameworkVolume-Price Split

  Dual Wheel Drive of ASP Rise & Delivery Volume Growth

  Report splits ASP and delivery volume two dimensions, proving XPeng's growth not simply relies on volume expansion lowering prices, but improving ASP by launching high-value models (like G9, X9) and guiding customers to choose high-spec versions, achieving healthy growth mode of 'Volume and Price Simultaneous Rise'.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• XPeng Inc (XPEV.US)

  Core analysis subject of report, its margin recovery and AI progress is core logic

  Strengths

  Full stack self-developed intelligent driving technology leads, AI R&D investment firm, Robotaxi and robot progress clear, overseas expansion smooth

  Weaknesses

  Short-term profit pressure, high R&D expenditure, flagship model supply chain bottleneck constrains production ramp-up

  Comparison

  Compared to other new forces, XPeng leads in intelligent driving technology implementation speed, but sales scale and capital reserves weaker than NIO, Li Auto

  Risks

  China NEV market competition intensifies, autonomous driving tech development lags expectations

• Volkswagen AG (VOW.US)

  XPeng's strategic partner, both sides exist synergy in technology licensing and joint development

  Strengths

  Provides global brand endorsement and potential long-term technology licensing revenue for XPeng

  Weaknesses

  Cooperation contribution to XPeng current profit limited, mainly start large-scale SoC chip shipments after 2Q26

  Comparison

  Compared to XPeng, Volkswagen is representative of traditional automaker transformation, while XPeng is tech newcomer, both are complementary not direct competition

  Risks

  Volkswagen itself EV transformation slow, or affect cooperation depth and investment willingness

Key data

• 1Q26 Revenue13.0 Billion CNYDown 17.6% YoY, Down 41.4% QoQ
• 1Q26 Gross Margin (GPM)20.6%Up 5.0 percentage points YoY, Set Historical High
• 1Q26 Per-Unit Gross Margin12.1%Up 1.6 percentage points YoY, Down 0.9 percentage points QoQ
• 2Q26 Delivery Guidance100k-106k UnitsSignificant QoQ Recovery
• 1Q26 R&D Expenditure2.9 Billion CNYAccounting for 22.3% of Revenue, Indicates Annual R&D Expenditure Will Maintain High Level
• 2026 R&D Budget12 Billion CNY7 Billion Used for Physical AI
• Target Price (US Stock)25.2 USDImplies 53% Upside Compared to Current Stock Price 16.44 USD
• AI Asset Valuation (SOTP)9.8 USD/shareAccounts for Nearly 40% of Target Price, Highlights AI Asset Independent Value

Impact & implications

XPeng Motors is transforming from a NEV manufacturer relying on subsidies and low-price strategies, to a tech-driven, high-margin, high-R&D-intelligence tech company. If its AI and robotics businesses implement according to plan, it will greatly elevate company valuation center, attract tech stock investors rather than limited to traditional auto investors. If market recognizes independent value of its AI assets, stock price expected welcome revaluation. Conversely, if AI business progress lags expectations, or China NEV market competition intensifies, then current valuation faces downward pressure.

Risks

• China New Energy Vehicle market competition intensifies, price wars continue
• Autonomous driving technology development progress lower than expectations, affecting AI asset valuation

What to watch

• Paid pilot startup situation for Robotaxi in Guangzhou in 2026 3rd Quarter
• Unveiling and mass production progress of next-generation robot 'Iron' in 2026 3rd Quarter
• Large-scale shipment volume of Turing SoC chips to Volkswagen starting 2026 2nd Quarter
• Whether free cash flow turns positive in 2026 second half